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Buying a house is a very involved process. There’s a lot of groundwork you should cover before applying for a mortgage. After you’ve narrowed down your home preferences and budget, research loan options to determine which mortgage lender is right for you.
There is no perfect number for how many lenders you should apply to, but the key is to look at multiple offers and compare them, and within a short time frame so it does not hurt your credit score.
- Should You Apply to Multiple Mortgage Lenders?
- Create a Shortlist of Mortgage Lenders
- What’s a Good Number of Mortgage Lenders to Apply to?
- Tips for Applying to Multiple Mortgage Lenders
- Research Their Rates
- Ask About Fees
- Compare Down Payment and Other Requirements
- Will Applying to Multiple Lenders Affect My Credit Score?
- The Best Way to Get a Mortgage
- Faster, easier mortgage lending
Should You Apply to Multiple Mortgage Lenders?
Applying to more than one mortgage lender means you are able to compare interest rates and fees to find the best deal. It puts you in a stronger position to negotiate and secure a better loan package if you have multiple offers in hand.
Different companies also offer different kinds of loans. This is especially true if it is an online mortgage company versus a traditional bank or credit union. So you will want to cast a wide net and explore options in greater detail. Ask questions and take the time to understand what kind of loan might be the best choice for you. A housing counselor, mortgage broker and sometimes a lender will offer general suggestions to help broaden your search.
Depending on the lender and their business model, there are different approaches to how they structure interest rates and what closing costs are paid upfront or can be included in the loan balance. Several online lenders offer low or zero closing costs, but you will have to pay a higher interest rate in exchange. More traditional financial institutions will sometimes charge higher closing costs but give you a lower interest rate.
Create a Shortlist of Mortgage Lenders
Tap your social network about how they chose their mortgage lender, whether it’s family, friends or coworkers. If you’re working with a real estate agent, they might also recommend lenders that they have worked with, and those that might not be the best fit.
Be sure to ask everyone you consult why they chose a particular lender. For example, it could be because of a good experience with a specific loan officer. Make sure their reasons match up with your criteria so you don’t waste your time with lenders that are not right for you.
What’s a Good Number of Mortgage Lenders to Apply to?
Speaking with multiple lenders allows you to get a better sense of your options, and determine which loan officers you would be most comfortable working with. It’s likely you will spend weeks working with the lender and sending documents, so you want to make sure it’s someone you feel communicates clearly and quickly.
But how many mortgage lenders should you apply to? The Consumer Finance Protection Bureau (CFPB) recommends that you contact “at least three lenders” on your shortlist.
There is no formula that tells you the exact number of mortgage applications to submit. Considering the time commitment required, some people are content with applying to two lenders and choosing which comes up with the better offer. Others prefer to shop extensively and will apply to as many as six or seven lenders before they decide.
Tips for Applying to Multiple Mortgage Lenders
If you take the path of least resistance and only apply to two lenders, keep in mind that you could miss out on a better deal. On the flipside, you are putting your credit score at risk if you submit too many applications exceeding 45 days.
Another reason to be wary of engaging with too many lenders is that the national credit agencies sell your information to other mortgage companies that you have not applied to. This is known as a trigger lead.
Once other lenders know you are actively shopping for a mortgage, you might get inundated with phone calls, emails and direct mailings from would-be competitors with offers that might be too good to be true.
In order to pick the best mortgage, you should request a loan estimate from multiple lenders. This way you can compare and contrast to see which has the best deal. Also, requesting a loan estimate is straightforward and no paperwork is required.
The only information you have to provide is your:
- Full name
- Annual income
- Social Security number (SSN) for the credit check
- Desired loan amount, based on how much you plan to provide as a down payment
- Preferred sales price of the home you want to buy, or an estimate if you are trying to get preapproved
Be sure you are comparing the same kind of loan from each lender, with similar features, so you can easily make the comparisons.
Research Their Rates
The interest rate has the biggest impact on both the size of your monthly mortgage repayments and whether it will change over time.
Related: Compare Current Mortgage Rates
If your priority is keeping your principal payments and interest rate payments the same over the life of the loan, then a fixed-mortgage rate is likely the better option. The only things that could alter your monthly payments are your property taxes, homeowner’s insurance or mortgage insurance.
On the other hand, adjustable-rate mortgages (ARMs) come with a much lower interest rate in the near term but are more unpredictable. This is an option for those who plan to sell the house within the initial fixed period of the ARM loan. This way you will avoid dealing with future rate increases.
Ask About Fees
Fees are another way to eliminate lenders from your list. According to the CFPB, the only fee lenders can charge you before providing a loan estimate is a small upfront fee to pay for pulling your credit report. The fee will usually be no more than $20, but some lenders do not charge this fee so ask ahead of time.
The loan estimate you receive from the lender will include a breakdown of the additional fees they will charge to finalize your loan. Mortgage companies must wait to charge you these fees until after you select an offer and inform the lender that you are ready to move forward with the application.
These include the mortgage origination fee and the appraisal fees for the home you want to buy.
Compare Down Payment and Other Requirements
The size of your down payment also impacts your interest rate. You should compare by how much each lender will reduce your borrowing costs based on the preferred size of your down payment.
In addition to your down payment, there are other closing costs that will be part of the loan package. Some lenders offer credits to offset your closing costs. However, you will have a higher interest rate as a result.
Compare these as well as the closing requirements demanded by each lender to determine the best option for you.
Will Applying to Multiple Lenders Affect My Credit Score?
You can apply to multiple mortgage lenders and it won’t negatively impact your credit score so long as all the credit inquiries happen within the same 45-day window.
Within that time period, multiple credit checks from different mortgage lenders are recorded by the credit bureau as a single inquiry.
However, the CFPB says “even if a lender needs to check your credit after the 45-day window is over, shopping around is usually still worth it. The impact of an additional inquiry is small, while shopping around for the best deal can save you a lot of money in the long run.”
The Best Way to Get a Mortgage
Ultimately, the best approach to getting a mortgage is by doing a lot of research to understand what is a great deal in the current lending climate. Use this as your benchmark when reaching out to different lenders—and eliminating those who cannot match or beat those terms—until you find the best deal.
Faster, easier mortgage lending
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